The Reasons Behind the 1929 Stock Market Crash

 The Reasons Behind the 1929 Stock Market Crash

There has never been a stock market meltdown like the one in 1929. The crash that struck investors at the tail end of October 1929 was unfathomable to them since they had been living it up during the Roaring Twenties. While periodic stock market crashes are normal as markets correct themselves after false highs, the events of October sparked a long-term economic slump.



Monday and Tuesday after Thursday, October 24th, 1929, saw an even steeper decline in stock market confidence. The Great Depression started with just three trade days and lasted for a whole month; it took the US little over 25 years to recover. Actually, the stock market did not bottom out until November 1954, much later than the initial day of the fall.



Therefore, what led to this economic catastrophe? As you can expect, there is a wide range of opinions on what caused it, but most people think that the mistaken notion that high share prices could be maintained forever is the most common one. It was during the 1920s bull market that prominent economist Irving Fisher famously said, "Stock prices have reached what looks like a permanently high plateau."



It looked like the whole country was engrossed in the stock market and trading shares was the "it" thing to do back then. The speculative boom started with regular people buying stocks, even though they had little idea how the stock markets worked. The expectation that the good times would continue led many to borrow money so they could buy even more. Ignoring the warnings, they allowed speculation to push prices farther higher, disregarding basic sense.



Once market participants realize the market is getting too hot, every speculation-based boom is bound to collapse. In early September of 29th, the market peaked, and prices started sliding precipitously, losing 17% of their value in the next month. Hope, rather than logic, drove prices higher even at that point, but the final collapse started when more astute investors cashed out. As a result, global stock market confidence plummeted in 1929, triggering the Great Depression.

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